4 results
19 - Rationalisation and specialisation in start-up investment
- Edited by Steven Brakman, Rijksuniversiteit Groningen, The Netherlands, Ben J. Heijdra, Rijksuniversiteit Groningen, The Netherlands
-
- Book:
- The Monopolistic Competition Revolution in Retrospect
- Published online:
- 22 September 2009
- Print publication:
- 05 January 2001, pp 417-441
-
- Chapter
- Export citation
-
Summary
Introduction
The accumulation of machinery and equipment is one of the prime determinants of productivity growth. As economic historians often argue, the richest countries were the first in inventing and adopting capital-intensive production techniques to exploit the productivity gains from rationalisation and mass production. At the same time, equipment investment is seen as the main vehicle to introduce innovations and to advance the specialisation and division of labour in industrial production. Unsurprisingly, investment promotion has always been high on the priority list of policy makers. This interest in encouraging fixed-capital formation implicitly rests on the presumption that private returns fall short of the full social returns to investment due to some unappropriated spillovers to the business community. De Long and Summers (1991), for example, argue along these lines. They found a strong and robust statistical relationship between national rates of machinery and equipment investment and productivity growth. They claim that the social returns to equipment investment by far exceed the private returns. Some form of investment promotion would help. To keep up in high-tech fields, governments are particularly interested in start-up investment that establishes new firms and production lines. They are seen as a source of innovative products and specialised services. Therefore, governments often prefer start-up subsidies to accelerate the rate of business formation.
We outline an intertemporal equilibrium model with monopolistic competition among diversified producers and start-up investment in equipment and machinery.
4 - Innovation, capital accumulation, and economic transition
- Edited by Richard E. Baldwin, Joseph F. Francois, Erasmus Universiteit Rotterdam
-
- Book:
- Dynamic Issues in Commercial Policy Analysis
- Published online:
- 13 January 2010
- Print publication:
- 06 May 1999, pp 89-137
-
- Chapter
- Export citation
-
Summary
Introduction
The demise of communism in Central and East European countries (CEECs) has set the European continent on a path of rapid change, challenging economic policy makers not only in post-communist countries themselves but also in Western Europe. Having rid themselves of communist governments in 1989–90, people in the CEECs soon faced dubious rewards. Their economies experienced an unprecedented crisis, with successive double-digit annual reductions in real GDP and mass unemployment. Lacking both previous historical experience and an accepted theory of systemic transformation, observers had a hard time interpreting what was going on. Was it an unavoidable prelude to the formation of a capitalist system, something along the lines of Schumpeter's creative destruction? Were these countries actually heading towards a capitalist system of the Western type, or were they trying to go for some idiosyncratic mixture of communist–capitalist society? In the meantime, economists more or less unanimously agree that the CEECs will eventually emerge as market economies of the Western type, and that they will do so to their own great advantage. However, controversy still dominates as to the detailed policies of transformation. This holds true in particular with respect to privatization and industrial restructuring, while historical experience and theory seemingly offer somewhat more guidance on issues of macroeconomic stabilization.
Given the necessity of immediate action, it is not surprising that much of the discussion has so far centred on policies pertaining to systemic transformation, as for instance evidenced by Clague and Rausser (1992), and Blanchard et al. (1992).
3 - Putting growth effects in computable equilibrium trade models
- Edited by Richard E. Baldwin, Joseph F. Francois, Erasmus Universiteit Rotterdam
-
- Book:
- Dynamic Issues in Commercial Policy Analysis
- Published online:
- 13 January 2010
- Print publication:
- 06 May 1999, pp 44-88
-
- Chapter
- Export citation
-
Summary
Introduction
Many applied commercial policy analyses measure only the static effects of trade liberalization, despite the fact that most economists believe that the greatest benefits lie in the growth effects. Putting growth effects into computable trade models is, therefore, an important subject. This paper considers some of the analytical and practical issues involved in doing so. Before turning to the analysis, however, we set the stage by (1) briefly reviewing the basic logic of trade and growth, and (2) briefly reviewing the evolution of computable general equilibrium (CGE) models in order to put accumulation effects into perspective.
The logic of growth
If a nation's labour force is to produce more year after year, the economy must provide the workforce with more ‘tools’ year after year. Here ‘tools’ is meant in the broadest possible sense, i.e. of any type of capital, and we must distinguish three categories: physical capital (machines, etc.), human capital (skills, training, education, etc.), and knowledge capital (technology). With capital thus defined, it is plain that capital accumulation is what drives growth. Now capital accumulation is – for the most part – driven by private profit-motivated investment by firms and individuals. Consequently, the key to determining an economy's rate of growth is to study the costs and benefits of investment in human, physical, and knowledge capital.
This sequence of rather obvious statements directs our attention to the only way that trade liberalization can affect growth, namely via its impact on investment in machines, skills and technology. Some policies directly alter the rate of investment but, for the most part, they act on growth by changing the incentives facing private agents.
13 - Dynamics of Trade Liberalization
-
- By Christian Keuschnigg, Institute for Advanced Studies, Wilhelm Kohler, University of Essen Linz
- Edited by Joseph F. Francois, Erasmus Universiteit Rotterdam, Kenneth A. Reinert, George Mason University, Virginia
-
- Book:
- Applied Methods for Trade Policy Analysis
- Published online:
- 05 June 2012
- Print publication:
- 13 October 1997, pp 383-434
-
- Chapter
- Export citation
-
Summary
Introduction
Why should we bother about making computable general equilibrium (CGE) trade policy models dynamic? After all, the theory of commercial policy is largely static in nature, focusing on the welfare consequences of production and consumption distortions attendant upon various trade policy measures. These concerns, one might argue, are adequately captured in static CGE models and, therefore, little can be gained by imposing dynamic machinery on our CGE models, which are sometimes quite hard to digest anyway.
Our response to this question is that any treatment of trade liberalization on the basis of static theory potentially misses an important part of the story. Suppose we know that the static efficiency gains of some proposed measure of trade liberalization (or integration) amount to a 2 percent increase of gross domestic product (GDP). Should we conclude that welfare of all individuals will increase by this percentage amount? Trade theorists are quick to point out that we should not. For one thing, there may be consumption gains in addition to production gains, ultimately leading to a larger than 2 percent equivalent income variation. Moreover, depending on their factor ownership position, individuals may be affected in perhaps dramatically different ways by the policy shift in question. In other words, efficiency gains are likely to have distributional implications which should not be ignored in careful policy evaluation. These are the concerns that static CGE models are geared to capture in a rigorous way, and they are addressed in other chapters of this book.